The standard rate of sales tax under the reformed general sales tax (RGST) has been proposed as 17 percent to avoid any major revenue shortfall during the remaining months of current fiscal (2010-11). Sources told Business Recorder here on Monday that the Federal Board of Revenue has also proposed standard rate of 17 percent for sales tax under the RGST.

However, the decision about the higher rate of sales tax has yet to be taken by the government. The higher rate of sales tax goes up to 26 percent, but it has yet not been finalised to bring down these rates from 26 to 17 percent. The FBR will suffer around Rs 30 billion loss following one percent reduction in sales tax from 17 to 16 percent. In the present circumstances due to devastating floods, the government is not in a position to reduce sales tax rate from 17 to 15 percent. The accumulative impact of sales tax reduction on revenue collection would be around Rs 60 billion in case rate would be reduced from 17 to 15 percent.

The Minister of Finance had said that the rate of sales tax under the 'reformed GST' (RGST) could be higher than 15 percent in case the government needed more revenue for flood victims. However, the rate of income tax surcharge would be very low as compared to the reported 10 percent. The Minister said that the base 'Reformed GST' rate would remain at 15 percent.

However, due to the flood needs the rate could be kept higher for some time. The government had announced 15 percent rate of sales tax under the 'reformed GST'. If more revenue is needed for flood victims, the government would make an upward adjustment in the rate of sales tax, Finance Minister added.